Transcription of Telecommunications Cost Management
1 Chapter 1 Introduction to Telecommunications cost Management Nothing comes amiss, so money comes withal. William Shakespeare, Taming of the Shrew Telecommunications is the second highest nonoperating expense for theaverage Fortune 1000 firm. Most organizations can reduce these expenses bythree to fifteen percent; some can cut costs by 30 to 40 percent. The key toachieving and maintaining lower telecom expenses is to understand industrydrivers, technical alternatives, and effective telecom procurement and process-ing organizations pay above-market prices, buy too much capacity, donot detect billing errors, and use less-than-optimal technologies.
2 Compoundingthe problem is the extreme conservatism of most internal telecommunicationsorganizations there is only modest reward for cost Management but extremepunishment for any service interruptions. Hence, the if it ain t broke, don tfix it mind set. Employees expect dial tone virtually 100 percent of the timeand are intolerant of any changes that risk chapters that follow outline technologies and techniques that, if appliedwith Management support, can certainly reduce expenses. Large firms todayoften operate with minimum analytical staff and do not generally look at costsin nonoperating areas (the plumbing ) as carefully as one would it may be theoretically possible for an organization to be without telecomwaste, the authors have never seen a single example.
3 Like fishing at a troutfarm, the potential to reel in significant savings is extremely high. AU1101Ch01 Frame Page 1 Friday, July 19, 2002 5:15 PMCopyright 2003 CRC Press, LLC How to Reduce Telecom Expenses (The Cliff Notes Version) At the most general level, there are only a limited number of ways to reducetelecommunications costs: Reduce usage (make fewer calls, use fewer trunks, etc.) Outsource Telecommunications Management ( cost savings occur only ifthis is done properly and will not apply to every organization) Find less-expensive suppliers Restructure contracts/agreements with existing suppliers Monitor and correct errors (a Windfall Associates report shows that billingerrors occur in approximately 45 percent of all bills, and generally theerrors are in the carrier s favor)
4 Use more efficient, less-expensive technology Decrease tax payments Use more efficient internal processes Increase security (prevent losses through toll fraud, for example)The general steps above are influenced by many trends in industry andthe workforce. Examples include: Increasing importance of Telecommunications in general. Reliance on com-munications for services continues to increase rapidly. From telecommutingto Web-based procurement, the importance of electronic communicationscontinues to monotonically increase. Continuing penetration of the Internet as a dominant force in the telecom-munications industry.
5 Proliferation of dozens of new technologies, including wireless services. Increasing levels of technical standardization counterbalanced by highlevels of complexity in the telecom architecture (at the provider andcustomer level). Change in the marketplace from supply-driven ( build it and they willcome ) to a more conservative market-driven environment ( if you arewilling to buy it, we will build it ). Coexistence of old technologies (copper connecting the customer at thelast mile) with many new ones.
6 Old technologies that work will remain in the telecom infrastructure fordecades. Continuing maturity of the outsourcing last bullet, outsourcing, deserves special treatment. As of this writing anumber of firms, such as QuantumShift and ProfitLine, offer comprehensivemanagement of Telecommunications functions. The client hopes to receivelower prices and avoid devoting Management effort to non-core activities. Theoutsource provider, sitting between the carrier and the consumer, consolidatesresources over multiple clients and earns appropriate Management fees forthe services.
7 Many of these services directly affect expense include: AU1101Ch01 Frame Page 2 Friday, July 19, 2002 5:15 PMCopyright 2003 CRC Press, LLC Bill payment and auditing Consumption report generation (including chargeback) Implementation of telecom projects RFP development Procurement, monitoring, and disconnect of services from carriers Contract negotiation on behalf of the client (or directly supply services toclient as a reseller/aggregator) Network implementationExhibit 1, adapted from a business plan developed by Hala Fadel andSunanda Narayanan at the MIT Sloan School of Management , shows featuresand benefits that could potentially be provided by a telecom outsource is not a panacea.
8 If agreements are improperly structured, thesavings may not accrue. Also, some organizations may have highly effectiveinternal resources that can achieve the same result without the middleman. The decision to outsource should be reviewed carefully. Why Telecom Costs Are So Difficult to Manage Exhibit 1 hints at some of the industry problems that plague telecommunica-tions services. Following is a generic list of cost Management issues faced bymost organizations: Telecom bills are large (delivered in large boxes or multiple CDs), difficultto read, and often not electronic.
9 Telecom vendors (local, long distance, etc.) do not have uniform formatsfor billing information. Correlating consumption (number of minutes used, etc.) to the bill is oftendifficult. Forecasting the organization s future usage is difficult. Trunks and otherservices must often be ordered in advance, based on an estimate of futureneed. Internal expertise, especially for the newest available telecom offerings,may be lacking. Fear of change hampers some initiatives that, if implemented, could reduceexpenses. Telecom regulations, while simpler than in the past, are still complex(certainly for the United States and increasingly for the rest of the world).
10 For example, some organizations, such as airlines, are exempt from Federal Excise Tax for Telecommunications . Voice, data, and video integration continue. The billing infrastructure forthese three media has traditionally been different (fixed months versus perminute, etc.). As some per-minute costs get merged into packet-based, flat-fee services, confusion over billing will undoubtedly surface. The Telecommunications environment is dynamic. Technologies, carriers,offerings, and pricing changes are almost constant. A study done in 2000may not apply in 2002.
